Comm: Precious

(Houston)

Oil prices have largely faded into the background of market noise over the last couple of years. Prices have been relatively steady in the $40-$60 range for some time, and the market has stopped focusing on it. However, any big change in oil would immediately grab attention. With that in mind, Bloomberg has put out its oil forecast for next year. The forecast is for US prices to fall to and average $55 per barrel next year as US oil production hits new records. The big question is whether demand will be strong enough to devour all that new oil.


FINSUM: This could be another dangerous year for oil. US output will rise, which could break the back of OPEC’s coordinated supply cuts, which have effectively created a price floor for oil.

(Houston)

Good news if you are long oil: OPEC has decided to extend its cuts. While the rise in the oil market has been long and slow, prices are currently around $60, which was apparently enough to push OPEC to maintain its output cut. However, there is a measure of discord between Russia and Saudi Arabia. Russia is not as reliant on higher oil prices as Saudi Arabia, and it does not want to concede too much market share to rivals by keeping production low. Therefore, it appears to favor an earlier exit of the current agreement than the Saudis.


FINSUM: Oil looks okay for now, but in the long-term we think this agreement will likely collapse because of pressure from Russia and the ever-growing US shale industry.

(Houston)

Oil has been doing well lately, putting a smile on the faces of traders and the shale industry and a grimace on the faces of everyday Americans. Well, Barron’s says the grimace won’t go much longer, as this oil rally is bound to fade. Oil is almost back to $60 after reaching $44 in July. However, for it to move any higher the market would need to be banking on geopolitical supply disruptions, which seems like a long shot to rely on.


FINSUM: The fundamental demand and supply picture simply don’t justify prices much higher than now, so we don’t think this run will be able to maintain its momentum.

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